Name concentration correction

Jasper Hommels and Viktor Tchistiakov describe the implementation of a simple analytical framework for the name concentration measurement that occurs in a credit portfolio due to imperfect diversification of idiosyncratic risk. The result is an intuitive correction on the perfectly granular portfolio framework

The Pillar I capital charge for credit risk (see Basel Committee on Banking Supervision, 2006a) is based on the asymptotic single-risk factor (ASRF) model (see Basel Committee on Banking Supervision, 2006b) for credit risk. One of its important assumptions is that a portfolio is well diversified. Thus one can calculate the required capital by focusing only on systemic risk. In the real world, however, the idiosyncratic risk of a portfolio cannot be fully diversified away. This violates the key

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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